IV paid $750,000 for a patent to detect malicious software embedded in digital content. Now, they want some alleged infringers to pay up.

Intellectual Ventures is arguing in a Delaware courtroom that Internet security firms Symantec and Trend Micro should pay roughly $310 million combined for a license to that patent through the end of last year.

That’s a lot of moola, even for a company like IV who routinely tosses around figures in the billions. Is the license for that patent worth that much? Symantec and Trend Micro don’t think so, and they have an interesting reason why they shouldn’t have to pay it (emphasis mine):

Symantec and Trend Micro are fighting back – and advancing a novel legal theory that could pose a significant threat to the business model of Intellectual Ventures (IV) and other patent acquisition firms.

The two companies are asking a federal judge to bar IV from seeking such large licensing fees on the grounds that a patent acquired for so little couldn’t possibly be worth so much. That’s on top of more traditional arguments that Symantec and Trend Micro do not violate IV’s patents in the first place.

That statement is just so over the top kooky crazy that I’m not even sure I really read it right. But then I read it and read it again, and there it is. The second argument that they don’t infringe is well and good. That’s standard operating procedure in the “Yes you did!” “No I didn’t!” “Yes you did!” craziness that is the patent litigation world these days.

But how can you say that just because IV was able to negotiate a good deal on the patent up front that they can’t get their money’s worth later? Isn’t this an argument not for caveat emptor, but caveat venditor? Does the seller have a responsibility to understand what it is they’re selling, and how to value it? Is that value even knowable, actually? Particularly with the heavily litigated technology patents, how can you ever really know what the next big thing is going to be and how important any given individual patent will turn out to be in the future? Patent valuation is extremely tricky, that’s not news.

Besides which, even if IV had paid a larger amount for the patent, that fact alone wouldn’t now benefit either Symantec or Trend Micro. What am I missing here?

Look, I’m fully aware of the strong-arm tactics that IV and their ilk use to extract high licensing fees. I beat that horse on a regular basis. We all know by now that patent assertion entities strike a balance between what it costs their victims/targets to litigate vs. what it costs to just take a license and get the monkey off your back already. But is that what’s happening here? It seems to me, and again, it is with huge, tremendous, agonizing agony that I say this, but this may be right:

Intellectual Ventures attorney Richard Hess said his client had a lot more information about the patent’s value than the seller, because IV knew how much companies like Symantec and Trend Micro used the technology.

See? Caveat venditor.

If Symantec and Trend Micro’s lawyers can argue that IV deliberately shafted the original patent owner on the price and perhaps convince that person/company to weight in on the case (can they do that? I really should get that law degree…) or say that they were devious in the negotiations, something sleazy like that, well, OK then. I’m more on your side. But buying low and selling high is pretty much what businesses do, or else I need to turn in my BBA.

The hope that the defendants have is the fact that patent trials are allowed, for some odd reason, to go to a jury where you’re likely as not to get some doofus member who has an ax to grind.

Even if the federal judge sides with IV and allows its damages theory at trial, Symantec and Trend Micro could still try to convince a jury that it is unfair.

It would be interesting to see how a group of 12 impartial people see this issue. But honestly, I don’t get this approach. Instead of arguing with the cop that the price of a speeding ticket is too high, why not argue that you weren’t speeding? Isn’t that the more logical place to focus your time and lawyer’s fees? You’re doing that, you’re paying them to argue non-infringement anyway, why muddy the waters with patent valuation arguments?

As much as I like to see Intellectual Ventures lose in any way they possible can, I just don’t think this dog will hunt.

“Patent trolls” are feeling the heat in Washington — and they’re taking steps to defend themselves in D.C.

Long pilloried in Silicon Valley as a drain on innovation, such companies have seen their troubles mount with regulators and lawmakers.

First, “long pilloried”, as used in the quoted article, is one of my favorite phrases ever, right after “Behold, I have found the stash of chocolate!”

Second, Nathan Mhyrvold’s being sent to DC to “make the case that patents benefit inventors” isn’t being 100% truthful because Intellectual Venture’s isn’t known for it’s ability to tell the truth they’re a troll. He’s being sent there because all of the bills before congress are about to put the hurt on his business model. It looks like the Goodlatte bill is really stuck in his craw. They’re not saying that, of course, they’re generalizing the problem in an effort to dilute their affect on it:

The current debate about patent trolls “seems to create uncertainty around patents generally,” said Russ Merbeth, chief policy counsel at Intellectual Ventures. “From our perspective, that’s going to have a long-term negative impact on American competitiveness.

What’s a “chief policy counsel”, anyway? When I think of company policy, I think of things like deciding whether or not to put a note on the fridge that all leftovers will be tossed by Friday noon, or setting the precedent that, though it does frequently reach 500 degrees with 1000% humidity in the summer in the armpit of the US Houston, no, you cannot wear a tank top, capris, and flip flops to the office. I suppose in this case, the chief policy officer’s job is to deflect the real issue and talk about how these bills will hurt American competitiveness which IV is doing , what, exactly, to help?

{crickets}

Intellectual Ventures executives have taken to the company’s corporate blog to question the “myth of patent troll litigation” and have touted the company’s role in helping startups, including Nest, the “learning” thermostat maker that has access to nearly 40,000 IV patents.

Uh, guess not. Nest came to you so they could fight off Honeywell in much the same way that Ditto went to IP Nav to fight off 1-800-Contacts. Nice try.

Look, you don’t file paperwork and spend $165,000 to fight something you’re not worried about. The fact that IV and others who are part of the Innovation Alliance are worried tells you you’re close to home.

As always, I’ll add my standard disclaimer that I think the market system can solve this problem quicker than the feds can (insert shameless plug for That Patent Tool here). But I think there are some good things in the Goodlatte bill, and I know this because they’ve got IV on the run.

This article over at Seeking Alpha (which sometimes requires a log in and other times not, which tells me they need to make up their mind already) was sent to me by a hipster tipster. It contains a whole lot of information about stocks and prices and the market and shorting stock and honestly? I don’t comprehend a whole lot of it. I was 10 when I read The Westing Game and, being the overachiever that I was, checked out a stack of books from the library (<— ha ha, remember those?) about the stock market but completely failed to finish any of them because math. I can’t wrap my brain around it any more than I can wrap it around the fact that George Lucas sold out off to Disney.

Definitely hipster, not my tipster.

But thankfully you don’t have to understand the ins and outs of Wall Street to know that New Bay is using IPR and the USPTO to go after VirnetX.

Hmm…

Here’s how it’s working:

VirnetX sued Apple for infringement (that’s one of many links about the suit, Google is your friend for history on that). New Bay Capital is a brand new baby company born of another brand new baby company named Eastern Shore Capital, neither of whom has an expressed interest in the patents in suit between Apple and VirnetX. According to the rules of IPR, it would appear that they don’t have to have an interest (quote from the USPTO site):

A person who is not the patent owner and has not previously filed a civil action challenging the validity of a claim of the patent may petition for an inter partes review of the patent.

An inter partes review must raise a substantial new question regarding the patentability of the patents in questions relating to obviousness or prior art references. In this case, there is no certainty that the review will be granted much less actually result in any real change to the scope of the patents. But it doesn’t matter and here’s why: from the chart in the Seeking Alpha article, just the filing of the IPR (both by Apple and by New Bay) have brought VirnetX’s stock price down by 20%. I don’t even understand this stuff, and serious thanks to Tom Shaughnessy for doing the actual math, but that’s not an insignificant amount.

While New Bay filed the IPR, they also went and played golf with the head honchos at VirnetX because I have it on good authority that trolls like to play golf, and told them they’d drop the whole thing in exchange for 10% of winnings from the Apple suit.

Just to recap:

New Bay files IPR.

Runs VirnetX’s stock price down, and probably buys a lot of it knowing they’re going to hit it rich in the Apple suit and the stock will thereby rise again. This would allow them to sell at a higher price than they bought which, if I’m given to understand anything at all about this world, that is the way you want things to go if you play the stock market.

Just to ensure that they get something if the IPR fails and/or the stock price doesn’t go up because evidently stock prices are super fickle, they agreed to back off altogether in exchange for 10% of the final judgment in the Apple case.

All we need now is someone to tie these New Bay cats with someone at Apple or Cisco or anyone else who’s been trolled by VirnetX.

If the black hats can play the shell game, why can’t the white hats?

UPDATE: From Tom at Seeking Alpha, we have this update which tells us that New Bay did indeed request to pull their IPR. From his analysis, it sounds like they’re a smidge afraid of discovery in EDTX. Such a pesky, troll-friendly venue after all these years. I contend that the damage was done…again, I have not much clue or interest in the stock market but can we get a read on who bought VHC stock while it was down and what they’ve done with it since? It feels like a loss in the troll-fighting scheme of things, but from a financial standpoint for New Bay folks, they might be in the market for a new car or two with their winnings, is what I’m saying.

IPTT

{Kramer image found here. Internet meme of cute little toddler at a screen door can be found virtually everywhere on the internet.}

Getting him a latte shouldn’t be hard, and he’s going to need one to stay awake for the discussion of how his proposed bill isn’t worth the disk drive space it takes up. I don’t mean to say that patent law is boring but….zzzz….it’s lots of legal stuff and…*nod*..*snort*…then the sheep went over the fence….and…

Ho, hey, what just happened there?

Because no one’s ever made this joke about his name 1000 times.Also? Not Senator Goodlatte’s arm. As far as you know.

If you can manage to stay awake to read the Goodlatte Bill Proposal (or isn’t that what a bill is? a proposed law? I really should have paid attention to Schoolhouse Rock) then you’ll find loopholes and balderdash designed once again to make people think that the government actually cares to solve this problem. (Hint: they don’t.)

Let’s start off with page three, lines one and two, emphasis mine:

1 cross-claim for patent infringement, unless the informa-
2 tion is not reasonable accessible, the following:

First off, typo. Reasonably accessible. Don’t I pay you enough taxes to hire a proofreader? Either way, since when has anyone known a patent troll to be reasonable? This is not just a loophole, it’s a giant gaping chasm you’ve left open to interpretation by a group of people who think nothing’s wrong with extorting money from Grandma Mimma who bought a printer/fax/scanner machine to use to run her quilt-selling store on Etsy. “Reasonable”? Not bloody likely.

This bill, like a few others out there, bangs the “Loser Pays” drum:

(a) AWARD.—The court shall award, to a prevailing
25 party, reasonable fees and other expenses incurred by that

1 party in connection with a civil action in which any party
2 asserts a claim for relief arising under any Act of Con-
3 gress relating to patents, unless the court finds that the
4 position of the nonprevailing party or parties was substan-
5 tially justified or that special circumstances make an
6 award unjust.

Here again, there’s a way out for the trolls. They’ll argue all day long that there are “substantially justified” or “special circumstances” that prevent them from paying. Besides which, as I’ve argued before, they’ll hide their assets and claim you can’t get blood from a turnip. I like the theory of loser pays as it applies to trolls, but the reality will not bear out the way you want. What will actually happen is it will prevent small inventors who are really truly being infringed on from taking the risk of a lawsuit. Strike 1 1/2, Bob.

Why 1 1/2? Well, because this is a pretty decent addendum:

‘‘(b) RECOVERY.—If a nonprevailing party is unable
8 to pay reasonable costs and other expenses awarded by
9 the court pursuant to subsection (a), the court may make
10 the reasonable costs and other expenses recoverable
11 against any interested party joined pursuant to section
12 299(d).’’

What I read here is that, since all interested parties would be required to be named, when Lodsys claims it can’t pay the bills on account of the high rent it has to pay for those swanky offices in Marshall, TX, the prevailing party can go after Intellectual Ventures. That’s got some teeth.

Totally agree. I realize the Goodlatte bill puts the hurt on long and drawn out discovery requirements, which is the stage that kills a lot of defendants. But wouldn’t it be better to resolve some of this prior to the suit actually being filed? If we can continue to gather information on the demands the trolls are making by tracking their threatening “pre-suit communications” at That Patent Tool, I maintain that we can rally the troops and shut these guys down. All you need is a solid set of data and communication between recipients and you’ve got yourself a way to collaborate and refuse to let these trolls even get to the litigation stage.

It’s great (I think) that the government is all over the patent trolling problem because it’s real, and it’s costing people money and companies. But what I remain unconvinced of is that these bills aren’t going to do more harm than good, and end up being repealed or modified in some way that’s going to cost us yet more money as taxpayers.

As always, I remain a fan of market-based solutions, though I commend Senator Goodlatte for a) trying and b) having a great name that I can poke fun at (even though it’s really pronounced “Goodlat“, and not “lottay” like the drink, which is a total bummer).

I don’t know that either of those questions is answerable to a degree of 100% certainty, but a little light reading a few days ago got me to thinkin’. Serendipity is one of those words that I love sneaking into conversations with people because I am under some grand delusion that it makes me sound smart to use big words. Overcompensate much? Why yes, yes I do.

Dictionary.com, defines the word as follows:

an aptitude for making desirable discoveries by accident.

I’m not sure it’s an accident or even, in fact, a discovery, but I read this blog post and then I noticed an interesting search term used to find my own blog:

So I thought “Trask –> Radio”

(If you don’t get the reference, please pretend for my sake? The movie it’s from stars Harrison Ford and is therefore by definition on the list of Best Movies in the World.)

What Brian Wassom seems to think, and I wholeheartedly agree, is that increasingly patent trolls are going after companies who are not in the technology sector, such as retailers:

Patent trolls actually sue more non-tech companies over software patents nowadays than they do tech companies, with retail being among the hardest hit of all.

And what’s more, his reasoning is sound:

That’s because the companies behind the software have a vested interest in defending it, while retail clients–who likely just licensed the technology as a one-off experiment–are much more keen to simply pay a nuisance settlement to get rid of the litigation, which the troll then uses to fund the next round of litigation.

The troll in question in this case is Lennon Image Technologies, of “we sued Ditto and then IP Nav ruined it for us with all their thuggery” fame infamy. They have a patent on an AR technology (AR = augmented reality, such as the ability to try on a pair of virtual glasses) which is currently under ex parte re-examination. We don’t know by whom, as Mr. Wassom points out:

It was submitted by an attorney, but the party for whom he did it is allowed to remain anonymous.

The fact that he used the terminology “…is allowed to remain…” makes me think he thinks it shouldn’t be allowed. And frankly, transparency is something that is sorely lacking in the whole patent space anyway, so I’m inclined to agree. I guess the feeling from the other side is “if we tell you who we’re asking for a re-exam on behalf of, you’ll know we’re scared of you coming after us, Mr. Troll.” A valid angle.

Addressing the question of what patents the trolls go after, it’s an easy call: crappy ones. Ambiguous ones. Patents that never should have been issued.

In terms of who they sue, I think this guy’s on to something. As the true definition of a patent troll includes, but is not limited to, the phrase “does not manufacture anything” they by definition always go after people who can’t counter sue for infringement. But what Mr. Wassom hits on is that in going after retailers, they’re going after people who have no reason to sue them back anyway. They don’t own the technology (or manufacture the product) themselves, they just use it (or sell it). Retailers are in the business of retailing and are therefore more likely to settle because they don’t care about the technology itself or being able to use it in other products.

I mentioned in my Quarterly Troll Review that at some point, the target of technology companies is going to be played out. Retail is someplace I think the trolls will head, though I envisioned the focus being more towards RFID technology.

I hate it when I’m right about something so wrong. (If you’re not an Aggie, that sentence can totally make sense.)

When last we left our (potential) hero Ditto, they were being sued by 1-800-Contacts and a company called Lennon Image Technologies (I’d link to you their website but oopsies! they’re a troll and don’t have one) for patent infringement. Kate Endress and her co-founder started an Indiegogo campaign, to which I contributed and for which I received a raspberry (which is to say, “purple”) colored t-shirt and a very nice note on embossed stationary that looked not unlike those hard cardboard perfume samples you get bombarded with if you shop in person at Macy’s only the Ditto one didn’t, to my great disappointment, smell like Drakkar. I was so excited to see this young company come out against trolls and imagined their campaign not only reaching it’s goal of $30k, but exceeding it mightily.

Alas, that was not meant to be. And I tried not to judge people for not helping her even though everyone, everywhere should want to beat these trolls into submission.

Out of what I can only assume was massive fear for her company’s life and panic at the thought of losing all she’d worked for, Kate chose to get in bed with Erich Spangenberg at IP Nav.

I do get it, I do. I understand why Ditto needed an ally and this article at IndyStar,com explains:

not only has partnering with Spangenberg given Ditto more resources for its legal fights, but it has also freed the Dittos team’s time to actually focus on building the business (a site where shoppers can virtually try on eyeglasses) again.

But is the state of affairs on the Patent War front so dire that companies have so few options at defense? Would Ditto have been better off fighting to invalidate the patent? They tried other options, it seems:

She sought out lawyers who might charge a discount rate in return for a stake in Ditto. She also pleaded for help from techies in Silicon Valley, where Ditto is headquartered. She had no luck on either end.

Her luck, as it were, changed when she was seated next to Mr. Go Thug on a panel. They struck up a conversation and out of a deep-seeded need for legitimacy and because helping Ditto would give him something positive to promote about his ne’er-do-well company, IP Nav cut a deal for equity in exchange for funding the lawsuits (both 1-800-Contacts and Lennon Technologies).

So now although Ditto has ostensibly been saved (the 1-800-Contacts suit is still pending, despite the pot of flowers sent to their parent company’s CEO by our favorite Spangenberg, which were summarily ignored), the means to get there sends exactly the wrong message, which is that partnering with a troll can save you from a troll. How is that even logical? Why does that work?

I should look up the last time I posted conclusions about the demand letters entered at That Patent Tool but I’m busy burning dinner working on a new release so you’ll just have to trust me that we’ve done this before.

Numbers aren’t normally my thing because math. But I thought it might be fun to run some stats on what’s been entered so far. What’s so interesting is that even with partial information, you can still see patterns emerging. By partial, I mean that sometimes we get the full name of the company the letter was sent to, along with the demand amount and the names of counsel, what products are specifically accused of infringing and why, etc. Other times (most, in fact) all we get is the name of the asserter and the potentially infringing product, which is to say not much information at all. Nevertheless, when you aggregate, here’s what you get:

Percentage of times the demand amount was entered (v. redacted or not provided): 29%

Avg demand amount across all letters: $8063.63

Avg demand amount by category:

Scanning: $1120.00

In-app purchasing: $5000.00

Transportation*: $150,000.00

*This is the Arrival Star v. TARTA assertion, the only one in this category.

Percentage of times the recipient was not named/redacted: 71%

Percentage of times the asserter was a six-letter company name: 56%

That last one is in there just for fun, because of course all of the six-letter asserters are really the Scanner Dudes, represented by Farney Daniels, PC. You want to know something strange? Most of the six-letter companies start with the letter F or I. “F” I can kinda get behind because Farney Daniels. But I? What’s up with that?

The more data that comes in the more we can wrap our mitts around what the trolls are doing and who they’re going after. If you’ve been hit by a troll or know someone who has, encourage them enter as much information as they can into That Patent Tool!!

And on a personal note, if you have any idea how to disable the touchpad on a Dell laptop running Windows 8, I would gladly pay you Tuesday for a hamburger today.